Will Japanese power industry ever change?

February  5, 2014

EDITORIAL: Power industry must change its old-fashioned ways

http://ajw.asahi.com/article/views/editorial/AJ201402050030

Will Japan's electric power industry ever change? We fear we sound like a broken record everytime we voice this thought out loud.

Kansai Electric Power Co.'s affiliates and other business partners have been caught rigging bids for power line installation projects ordered by KEPCO.

The Fair Trade Commission has not only issued a cease-and-desist order to the offending businesses and ordered them to pay a surcharge, but has also instructed KEPCO, whose employee allegedly induced or facilitated the violations, to take measures to prevent a recurrence.

In a bid-rigging case such as this, it is unusual for the watchdog body to demand remedial action from the party that ordered the projects.

But KEPCO is not the only utility that has brought disgrace upon itself in this manner. In December, Tokyo Electric Power Co. was also involved in a similar bid-rigging case, in which a TEPCO employee played a role, and ordered by the FTC to clean up its act.

TEPCO and KEPCO are Japan's No. 1 and No. 2 utilities, respectively. We are shocked that both power giants have been engaged in shady deals even after the March 2011 nuclear disaster at the Fukushima No. 1 power plant.

Electric power companies have raised their electricity charges one after another, claiming growing fuel costs for thermal power generation because their nuclear reactors remain offline.

But utilities are allowed to set their electricity rates by applying the so-called full cost pricing method and they enjoy a monopoly in their service areas. As a result, cost-saving has never been a real concern for them. Moreover, they maintain inappropriately close ties with related businesses that provide cushy jobs to their retired executives. This is the nature of the power industry that has been pointed out repeatedly, and bid-rigging only symbolizes the rot.

Refusing to mend their outdated ways, the utilities are calling vociferously for the restart of offline nuclear reactors, suggesting that they will have to raise their charges again if reactors remain idle. This is insane.

In addition to the problems involving private-sector companies, there are issues that have to do with relations of mutual reliance between the electric power industry and the ruling Liberal Democratic Party, as recent investigative reporting by The Asahi Shimbun has brought to light.

Here are some facts: The total amount of donations made to the LDP by power company executives in 2012 was 4.3 times more than the previous year; in a bid to get LDP lawmakers to support the construction of new nuclear reactors, the Federation of Electric Power Companies of Japan provided "model answers" to a questionnaire distributed within the LDP; to financially back Akira Amari, minister in charge of economic revitalization, nine utilities purchased tickets for his fund-raising parties in a way that would not violate the Political Fund Control Law.

The Asahi Shimbun's reports suggest that the close ties between the power industry and the LDP became less obvious in the immediate aftermath of the Fukushima nuclear accident, but the ties were apparently revived upon the LDP's return to power.

Prime Minister Shinzo Abe has warned Fumio Sudo, who will become TEPCO's chairman in April, against "relapsing to the pre-3/11 smugness arising from regional monopoly."

But if Abe truly means what he says, his ruling party should prove itself to be of a different stripe from the power industry. Specifically, the Abe administration ought to restrict the flow of money from the power industry to the LDP and keep everything transparent and aboveboard.

Once that is done, the administration needs to forge ahead with electric power system reforms, enhance supervisory functions of the markets and various regulations, and get the electric power industry to transform itself into a competitive and self-reliant industry.

Economic revitalization is possible only by dismantling the old-fashioned structure of the power industry.